Pay off your trade no matter how much you owe...Is this a scam?

Question

I heard a commerical on the radio, a car dealership stating "We'll pay off your trade no matter how much you owe!" I forgot who it was...Ford? Nissan?

However, is this a scam? Because I have a 04 mustang (40th anniversary edition) and I owe 17,000 on it....its trade in value is 12,000. Why would they pay 5,000 dollars extra?

Answer 1

It's true, however, there is always that little phrase added to it: "If we make a deal..." --- they can try all they want, but the bank is the one making the final decision.

Of course, they'll lure you in with that. You'll go in thinking your $5000 upside-down, only to find out that the auction value on your car is less and you're probably really $7000 upside-down. So, let's say you're looking at a new car that's $15,000. They'll write up a deal for the $15,000 plus the $7K you add in negative equity, which has you financing $22K (before taxes, fees, etc.). So, you're looking at paying over $425/month for a car that WAS $15,000.

Several things, though:

1) Banks won't overallow that much. Even with awesome credit, you might only get a 120% overallowance.

2) Even if they did OK this loan, you're now driving off absolutely buried in the new car. No chance of ever trading it in early.

If it's a TV ad, it's always nice to read the fine print. It will always say something like "with 25% down" or similar.

There's no catch. It's just simple math. There's no way to hide that negative equity. It's gotta go somewhere. There is no "magic" dealer that can give a huge overallowance on trade value, either.

Be careful.  

Answer 2

Its not a scam, rather and advertising ploy.  They actually just add the negative equity to your new loan.  Do the homework on your trade and determine what the payoff diff. is between the trade allowance and the payoff.  If you owe more than the car is worth, then the dealer will actually have to add the difference onto the loan.  Dealers have to deal with banks.  Banks actually determine the loan to value based on your credit worthiness.  In your case, in order to avoid adding 5000 bucks on top of your new loan, it would behoove you to try and sell it for more than the dealer is allowing you.  If you actually get someone interested and they qualify, you can actually bring the buyer in to the dealer and let them try to obtain the financing for you and them if you/them haven't already tried to obtain the financing already.  Dealers are not scammers.  They just want to sell cars and make people happy.  Happy customers means more car sales and if people would just do the homework via internet, and the leg work(if necessary and you have the time) a car deal in itself is actually really easy.  Customer's these days, make it more difficult than necessary because often people feel that they may have been able to get a better deal..   All the information you need to buy a vehicle is right here..   Do the work and enjoy your new vehicle..    Hope this helps and Have a Great Day!  

Answer 3

Just took in same year 40th anniversary on a trade. It was a convertible with like 45,000 miles. Wholesale value for it was 8500.

Answer 4

No, it's not a scam. I don't think most people understand. Most dealers will pay off you trade. But when they tell you that they will "pay off you're trade", they're saying they will pay off what you owe, use your old car as a trade, and if you still owe money because you owe more money than what the car is worth, they will add it to next vehicle you plan to purchase.

Answer 5

Elgrande is pretty much right.

Every single dealership has to pay off your trade anytime anyone trades a vehicle in that still has a loan on it or else they wouldnt own the car. They just take the extra amount and roll it into the loan for your new car. its not a scam, they have to do it, they just charge you for the extra amount they owe.

Also FYI unless your Mustang is a GT with less than 30k miles it isnt worth $12k as a trade, if you gave more detail on the car I could tell you what the wholesale value is.  

Answer 6

yes its a scam. you will still be paying it in the new loan.. a dealer is not going to take a loss on a sale,  

Answer 7

It isn't really a scam. What happens is they add any negative equity to the vehicle you purchase from them. It simply compounds the problem since the car you are buying loses value as soon as you get it off the lot. Better to pay off your current car or at least get to a break even point.  

Answer 8

I am assuming that the $17000 is the remaining principal on your auto loan and not the sum of the remaining payments.

The dealer can't create $5K in equity out of nothing.  

Usually, they adjust the price of the new car you are buying to make up the difference by failing to offer a discount, retaining a rebate, or adding costly high-profit dealer-installed options.

Sometimes, they are able to roll part or all of the remaining debt on your old car into the new loan.